For Immediate Release
Chicago, IL – August 04, 2014– Zacks Equity Research highlights Avago Technologies (AVGO-Free Report) as the Bull of the Day and Nu Skin Enterprises (NUS-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Essex Property Trust Inc. (ESS-Free Report), Chesapeake Lodging Trust (CHSP-Free Report) and Parkway Properties Inc. (PKY-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Avago Technologies (AVGO-Free Report), a Singapore incorporated company with joint headquarters in San Jose, California, is a leading designer, developer, and supplier of a broad range of analog semiconductor devices and digital, mixed signal, and optoelectronics components and subsystems. These innovations are used in wide range of wireless, wireline, and industrial applications.
Avago started as a Hewlett Packard semiconductor division in the 1960's and was later a part of Agilent that was spun-off from HP with an IPO in 2009. The $18 billion company makes radio frequency chips that are used in smartphones by Apple, Samsung and other mobile device manufacturers.
Avago products primarily serve four markets: Enterprise Storage (38% of FY 2013 revenue), Wireless Communications (25%), Wired Infrastructure (23%), and Industrial & Other (14%). It has a diversified revenue model with 37% of its FY 2013 revenue derived from China, 20% from North America, 10% from Europe and 33% from the rest of the world.
On May 29, Avago reported its financial results for Q2 of its fiscal year 2014, ended May 4. Net income for the quarter was $158 million or $0.61 per share, up from net income of $134 million or $0.53 per share for the prior quarter and net income of $113 million or $0.45 per share in Q2 last year.
According to the management, “our wireless business came in significantly above our expectations due to strong product ramps for our FBAR-related products into multiple Asian Smartphone OEMs. We also saw resurgence in Industrial re-sales through our distributors, especially in Europe and Japan”.
On May 6, Avago closed the acquisition of LSI Corporation. Subsequent to the acquisition Avago joined the S&P 500 index, replacing LSI Logic.
Bear of the Day:
Ever since word surfaced in January of Chinese authorities investigating certain business practices of Nu Skin Enterprises (NUS-Free Report), the stock of the network marketing company has been under pressure, hitting a new 52-week low last week.
Nu Skin is a direct selling company that develops and distributes personal care and nutritional products. It is probably not a coincidence that the decline in NUS is occurring at the same time as the ongoing battle in Herbalife shares over whether or not that company is an illegal "pyramid scheme" that exploits its distributors.
But where the rubber meets the road for any public company is in the earnings outlook because analysts who make such projections are taking into account regulatory and legal issues and obstacles.
3 REITs to Benefit from Higher Activities
The Fed specified in its latest meeting that it would curb the bond buying program by another $10 billion to $25 billion a month, but gave no clue on the timing of the interest rate hike. The commitment of a low interest rate environment for a “considerable time” following the closure of the asset repurchase program was made with no specifics, leaving everyone in the lurch.
Obviously, the continuation of the low interest environment for some more time would give the REIT (real estate investment trust) shareholders a chance to rejoice, but we believe that time has now come to look beyond this rate sensitivity issue and focus on the other driving factors of this unique hybrid asset class.
Among the broader economic indicators, the Consumer Confidence Index, which is trending up for the third consecutive month, has grabbed much of our attention. This index reached 90.9 in July – its highest level since October 2007 – from 86.4 in June. The solid growth has been propelled by better job data and an optimistic short-term outlook for the economy.
This was further reinforced by an acknowledgement from the Fed about the rebound in economic activity and the improvement in the labor market conditions in its latest meeting.
A better economy translates into more activity for REITs as they own and manage income-producing real estate, such as apartments, offices, hotels, industrial or other facilities. Economic recovery is expected to propel demand for properties, thereby encouraging more rent and occupancy levels.
Naturally, higher employment means more space to accommodate these workers. On the other hand, people getting hired or carrying on with their current job contract would have more means to rent an apartment instead of living with their parents or in smaller units. The rise in personal income also paves way for more shopping, dining, entertaining outside; thereby, catapulting to enhanced footfall at malls. Apart from these, in this environment, leisure trips and business travels also increase, leading to a rise in demand for hotels.
In addition, the sluggish pace of economic recovery in the past limited robust growth in supply, resulting in greater scope for existing owners to enjoy higher demand for their properties. However, the Fed pointed at underutilization of labor resources and weak activity in the housing sector, indicating that there might be some more time until it makes any rate hike.
How to Pick Stocks?
Amid this environment, picking the right stock from several sub sectors in the REIT space could be a difficult task. But an easy way is to screen them with favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
Our proprietary methodology – Earnings ESP – determines stocks having the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Unquestionably, an earnings beat reinforce investors’ confidence on the stocks and result in quick price appreciation. Along with the solid dividend income that these REITs offer, investing in these stocks guarantees encouraging returns. Moreover, we believe that the market correction on Thursday, due to the concerns emanating from Russia and overseas economies, offers further motivation to add these better-positioned REITs at a cheaper price.
Essex Property Trust Inc. (ESS-Free Report) has a Zacks Rank #3 and an earnings ESP of +18.24%. The Zacks Consensus Estimate for the second quarter for this residential REIT is pegged at $1.70 per share. It has a long-term expected growth rate of 8.1%.
California-based Essex Property accomplished the merger with BRE Properties on Apr 1, thereby creating a premium West Coast multifamily REIT. It was also added to the S&P 500 Index on the same day. In the West Coast, strong growth in jobs amid a lower supply of properties in the market keeps the demand momentum robust. And with an enhanced property base and strong management team, we believe that Essex can efficiently leverage on attractive market fundamentals and reward shareholders accordingly.
- Essex Property is expected to announce its second-quarter results after market close on Aug 6.
Chesapeake Lodging Trust (CHSP-Free Report) is a Zacks Rank #3 stock with an earnings ESP of +4.84%. The Zacks Consensus Estimate for the second quarter is 62 cents per share. The company delivered a positive earnings surprise in all the last four quarters with an average beat of 7.73 %. The stock also has a long-term expected growth rate of 8.0%.
Based in Annapolis, MD this lodging REIT focuses on investing mainly in upper-upscale hotels in key business and convention markets, which have high barriers-to-entry. Favorable hotel supply and demand fundamentals in its geographic markets, asset management efforts together with the accomplishment of its major repositioning projects are expected to lead to positive operating trends for this REIT.
– Chesapeake Lodging is scheduled to announce its second -quarter results after market close on Aug 4.
Parkway Properties Inc. (PKY-Free Report) carries a Zacks Rank #3 and has an earnings ESP of + 6.06%. The Zacks Consensus Estimate for the second quarter is 33 cents per share. The company delivered a positive earnings surprise in all the last four quarters with an average beat of 46.45 %. The stock also has a long-term expected growth rate of 14.7%.
Orlando, FL based Parkway Properties acquires, owns, develops and manages office properties in high-growth submarkets in the Sunbelt region of the U.S. The company’s high-quality acquisitions across its core markets and favorable lease economics are expected to drive its fundamentals. And an improving economy is expected to add to the bliss.
- Parkway Properties is scheduled to announce its second-quarter results after market close on Aug 7.
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